Title

Author

Keywords

Discount, decision making, process, hotel, human judgment

Abstract

Management faces a paradox in managing discrepancies between actual demand and expected demand in daily operations, thereby requiring constant adjustments in pricing under the supervision of management in the short term. The purpose of this study is to determine how discount choices are created and to understand information processing related to the pricing and discounting decision-making process as well as narrating the events, stages, and cycles of choices made by hotel managers. This study also determines the role of human judgment based on contextual factors in the decision-making process. This mixed methods research design consists of three steps: observation, classification, and association. First, the observation stage includes the careful observation, documentation, and measurement of the phenomena within the social and institutional context through structured interviews with hotel managers. Second, abstractions are classified into categories based on the attributes of the phenomena. Information attributes are categorized into static and dynamic information, and the source of information is characterized in external and internal sources. Third, the association between the category-defining attributes and the outcome observed (discount or not) is explored using conjoint analysis. This last stage attempts to investigate not only the importance of information attributes, but also the role of social-, institution-, and human agency-related influences in managers’ discounting decisions. The major findings of the study are as follows. First, habitual practices are identified to show how the classification of events, activities, and institutions are put into practice as managers have developed their own knowledge and practices over time. Such practices become iii routine over time when managers encounter a similar problem, disequilibrium. Conventions such as the “less than 35 rule,” the “80:20 rule,” the call around, following suit, and trial and error are manifestations of the coping strategy for the hamstrung complexity in the hospitality industry. Human agency and its perception of reality within a specific context infuse meaning into business practices. The critical role of managers is recognized in making discount decisions as they use a collection of complex patterns in the lodging industry to perceive meaningful patterns in the environment to make a final judgment. The focus on the process of discount decision making allows for detecting how environmental stimuli are watched by managers with deeply held views. Managers use certain rules and patterns to complete their information search. Hotel managers place different values on the information attributes in making a discount choice. The average importance of an attribute represents how important it is to managers when making their discount choices. The results indicate that managers consider the booking window to be the most preferred information, followed by competitors’ room rates, the potential for cancelation, and occupancy rate. A discount choice is the product of human agency and social forces over time, distinct from the rational model. Different hotel operation structures and human agencies seek to make a difference in the process of discount decision making. Hotels in Road Warriors, which are smaller in size, are not located near major attractions but seem to fill the need for leisure travelers passing by the highways. Less competition exists because the regional area does not serve as a main attraction. These hotels in Road Warriors thus place great importance on the booking window and potential for cancellation when considering offering a discount. If they do iv not see enough reservations in the short term and foresee the potential for cancellation, hotels in Road Warriors tend to make a discount choice. These hotels do not seem to indulge in implementing other pricing strategies, but do drop the rate. Hotels in Stars in the Universe, which are larger in size and affiliated with chains/brands, are located near the main attractions (e.g., beach, downtown, or convention center). Hotels in Stars in the Universe consider the booking window to be the most critical information, followed by competitors’ room rates, occupancy rate, and potential for cancellation. The extent of how much time is left before an arrival date serves as the most important piece of information in making a discount choice. These hotels emphasize knowledge of competitors’ room rates as these hotels have many competitors around and consistently compete for more market shares in the area. Moreover, human agency, mostly grounded in industry tenure and age, determines how managers process discount choices. Market Movers consists of more experienced and educated, older, and predominantly male experts. These general managers, assistant general managers, or revenue managers have gained knowledge and know-how during their extended experience in the industry. Managers in Market Movers focus importance on the booking window, followed by competitors’ room rates, occupancy rate, and potential for cancellation. They monitor bookings ahead of time and consider offering a discount as the arrival nears. Managers in Market Movers also show great concern for competitors’ room rates. They compare their rates to competitors’ in order to ensure that their own rates do not go over competitors’ room rates. v Managers in Entourage are considered to be younger, less experienced, and less educated. Most managers in Entourage work in marketing/sales or front desk/operations and tend to follow and attend to the industry leaders. These novices try several trials and make errors along the way, but become rising stars in the industry when their trial-and-error approach succeeds. Entourage’s discount choice is influenced more by the booking window, followed by potential for cancellation, competitors’ room rates, and occupancy rate. Managers in Entourage consider the booking window to be the most critical in making a discount choice, and they act quickly to offer a discount when an arrival date nears. They tend to respond to immediate changes in booking; thus, the potential for cancellation determines the discount choice among Entourage managers. The main theoretical contribution of this study is to demonstrate that managerial frameworks based on a rational premise are not complete. These frameworks should be complemented with a human judgment framework, which provides a richer account of how managers in the lodging industry approach complex price-setting situations. Managerial discounting decision making often falls short of the purely rational model for managers and is bounded by nature. Managers are not always rational in compiling and assessing information leading to discounting that is compatible with the accessibility to information and the computational capacity. The human judgment process, discovered and examined in this study, provides a richer understanding of the process of discounting in the lodging industry. This process is featured by a non-conscious processing of information; the retrieval of the information is based on associations of patterns; the context in which this processing occurs is high paced; and the outcome of the decision is imbued with judgments. vi In terms of managerial implications, this study enables hotel managers to learn under what conditions other managers consider making discount choices. Information attributes such as the booking window and competitors’ room rates are thought to be more valuable than other information. Managers should observe booking windows carefully when making a discount choice. Managers should pay close attention to bookings more in advance so that they detect discrepancies between forecasting and reality in a timely manner. If so, managers can make operational adjustments to rate strategies by controlling not only room rates, but also length of stay (LOS) and channels. Limitations and suggestions for future research are also discussed.

Notes

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